Tag Archives: Energy

Dividend Stocks at a Value: January 2015 Watchlist

A good dividend stock pays and even raises its dividend whether the market goes up or down. As long as you don’t sell the shares, you will always get a positive return (the dividends you receive) no matter how the market behaves. Recently, there has been a lot of volatility in the Energy sector due to oil price plummeting so an investor could value dig there to get a high starting yield and potential return once oil price goes up again…that is if one can stand the volatility and the possibility of more downside in the near-term. That’s why I like buying in small chucks at opportune times when a company on my watchlist is priced at a value. Dollar-cost averaging allows the flexibility of buying more shares at a lower price when the market behaves negatively.

For this month, I looked over my current holdings to see which dividend payers are good values to buy. There are also other good Energy companies to look into, including Exxon Mobil Corporation (NYSE:XOM), Enbridge Inc (TSX:ENB)(NYSE:ENB), TransCanada Corporation (TSX:TRP)(NYSE:TRP), Inter Pipeline Ltd (TSX:IPL), Suncor Energy Inc (TSX:SU)(NYSE:SU), Cenovus Energy Inc (TSX:CVE)(NYSE:CVE), Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ), and Vermilion Energy Inc (TSX:VET)(NYSE:VET).

Classic Dividend Companies

This list shows the current yields, and I believe are good starting yields (with respective to the company’s historical yields) to start buying into these companies if you believe in the future of these companies.

  • Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) – yield: 4.16%
  • Chevron Corporation (NYSE:CVX) – yield: 3.96%
  • International Business Machines Corp. (NYSE: IBM) – yield: 2.82%

Bank of Nova Scotia

Bank of Nova Scotia logo

Bank of Nova Scotia is the third largest bank in Canada. This Canadian leading bank provides financial services in over 55 countries. It’s medium-term objectives were met in 2014. The 2015 medium-term objectives is the same as 2014. For example, earnings per share growth is expected to be between 5 and 10%, while return on equity is expected to be between 15 and 18%.

A table for Scotiabank 2014 Medium-Term Financial Objectives Met
Source: Bank of Nova Scotia Q4 2014 Investor Presentation, Slide 5

Chevron

Chevron logo
Chevron is a large oil company, which pays an attractive dividend of over 3.9%, 20% higher than its 5-year average of 3.3%. It’s paying out 38% of its earnings for its dividends. Historically, this is at the higher end of its yield range, unless one wants to shoot for above 4.25%, which looks possible.
CVX Dividend Yield (TTM) Chart

CVX Dividend Yield (TTM) data by YCharts

If history is telling, then, having raised dividends for 27 years in a row, CVX will be increasing its dividend in Q2 of 2015 even amidst low oil prices. Additionally, Morningstar gives it 4-stars, meaning the shares are currently undervalued.
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Launching the Canadian Buy the Dips Portfolio: Identifying the Leading Energy Companies – Part 1

Summary

  • The Canadian Dollar is much weaker than the US Dollar from a year ago.
  • As a result, some Canadians may want to invest in Canadian stocks instead of US stocks for now.
  • The main strategy of this portfolio is to buy leading companies after some form of pullback.
  • 2 Canadian leading Energy companies can be bought with at least 31% and 38% potential gain in 2 to 3 years, not including dividends.

Why I’m Launching the Canadian Buy the Dips Portfolio

With more than $1.14 Canadian Dollar needed to convert to $1 U.S. Dollar (not to talk about added conversion fees), do-it-yourself Canadian investors may want to stay in their domestic currency and invest in Canadian companies instead of US ones. A reader asked me how to build a Canadian stock portfolio that is conservative and have the goal of income and steady growth. One strategy is to buy companies in a specific sector which has pulled back. A classic of buying low and possibly selling high. I say “possibly” because it might be wiser to buy low and sell high in certain sectors or companies more than others.

To remain conservative though, let’s first identify leaders in their respective sectors and industries. One way of doing this is finding the companies with the largest market capitalization in a particular sector. They are able to grow big (relative to their peers) because they are doing something right. These companies generally have more solid balance sheets and pay a growing dividend.

A Couple of Canadian Leaders in the Energy Sector

A stock portfolio can only be built one company at a time. The Energy companies have pulled back with the oil price decline. This fits the pull back criterion. Let’s take a look at some of the Canadian leaders in the Energy sector. They are Suncor Energy Inc. (TSX:SU)(NYSE:SU), and Canadian Natural Resources Ltd (TSX:CNQ)(NYSE:SU). They are the companies with the largest market capitalization in their respective industries.

Industry Leaders *Market Cap S&P Credit Rating *Yield
Integrated Oil and Gas Suncor Energy 52.4B A- 3.1%
Oil and Gas E&P Canadian Natural Resources 41.4B BBB+ 2.4%

* As of the close of Nov 28, 2014 on the TSX

Introducing Suncor Energy

Suncor logo

Suncor Energy is Canada’s largest integrated energy company, having a balanced portfolio of high quality assets. Its oil sands business is located in Alberta, Canada having 6.9B barrels of reserves and 23.5B barrels of contingent resources. Suncor estimates to have a compounded annual growth rate of 10 to 12% in oil sands and 7 to 8% overall until 2020. Suncor has been publicly traded since 1992. Since its high of $46 in June 2014, Suncor Energy has dropped to $36, a 21.7% decline.

SU Chart

SU data by YCharts

Even as the oil price dropped like a rock in the financial crisis, Suncor maintained its dividend. In fact, since 2011, it has increased it from $0.10 per share to its current $0.28 per share, a 180% increase. Its current yield is sitting around 3.1%, which is higher than the index’s (TSX:XIU) 2.34%.

Currently, this industry leader can be bought around $36. Rated 4-star by Morningstar, it is undervalued with a fair value estimate of $50, which is a potential 38% gain. Read More